china's threatened embargo on low-cv thermal

Below is an article released from Platts. Should work in favour for BGG, last paragraph highlights this.

China unnerves Asia market with threatened embargo on low-CV thermal coalPerth (Platts)--16May2013/631 am EDT/1031 GMT

Market reports that China's National Energy Administration is considering a proposal to outlaw the import of some grades of lower calorific thermal coal has been greeted with a mixture of consternation and disbelief by participants in the Asian seaborne market Thursday.

Indonesia is by far the largest producer and shipper of lower calorific value coal to the Chinese market, supplying about 50 million mt/year of sub-bituminous grades, and most of the 50 million mt/year of lower quality material classed as lignite in Chinese customs data, said market sources.

"China's proposal has the potential to displace all its lignite [imports] and more than 50% of its Indonesian thermal coal imports, around 100 million mt," said one market participant.

He added that the Asian thermal coal market was facing a "perfect storm" as a result of the planned imports ban, which could link into a draft rule requiring all Indonesian coal to be processed before its export that in his opinion could cut that country's coal export volumes by 25 million mt/year.



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The beneficiaries from these two measures, if implemented, would be suppliers of high ash Australian 5,500 kcal/kg NAR thermal coal, as Chinese importers would likely buy more of this product and wash down its maximum 23% ash content to blend with domestic thermal coal.

Commenting on the implications of the possible import ban by China on low calorific value thermal coal, Australia's Macquarie Bank said in a report Wednesday that Indonesian suppliers would be the "obvious losers".

"In our view, this is likely to lead to [the] further development of a two-tier market, with sub-bituminous material having to discount even more heavily to prices into India as much as possible," said the bank's commodity analysts in the report.

CHINESE MARKET IMPACT

Chinese traders said they had been aware the NEA was working on a draft edict to stop thermal coal with a calorific value of less than 4,540 kcal/kg on a net-as-received basis being brought into China, but they believed the rule would be very difficult to enforce.

A coal trader with one of China's largest coal importing companies said several of his end-user customers had already received informal government notice of the suspension of low-CV coal imports.

The proposed NEA coal imports ban would also apply to low-CV coal with an ash content of more than 25% -- which is above the maximum 23% ash level of Newcastle coals -- and sulfur above 1%, and it was designed to address the problem of poor air quality in Chinese cities, said traders in China.

The timing of the potential embargo's introduction has not been disclosed to Chinese market participants.

The possible ban on high-sulfur and high-ash coal to reduce utilities' emissions was understandable to a Shanxi-based coal trader, but he didn't understand why other grades of low-CV coal should be banned.

Lots of the low-CV coal imported by China from Indonesia was low in ash and sulfur, he said.

"Utilities and importers would jump out to oppose [the ban]," said a trader in China's Fujian province.

"Small coal importers who rely on low-CV coal imports might be out of business," he added.

Some utilities in southern China had been buying 3,300-3,500 kcal/kg NAR thermal coal from Indonesian suppliers recently at Yuan 285/mt CFR ($46/mt), according to another trader.

Many coal-fired power plants in southern China have adapted their boilers to run on low-CV coal to cut their fuel costs, as 3,800 kcal/kg NAR and 4,700 kcal/kg NAR coal had a cost per calorific unit of around Yuan 0.098/mt compared to Yuan 0.11/mt for 5,000-5,500 kcal/kg NAR coal, said the trader.

An Indonesia-based Chinese trader said his company was now taking a more cautious approach to securing large amounts of low-CV Indonesian coal for the Chinese market, and was preparing to tap Indian market demand for high-sulfur Indonesian coal.

Rumors about a possible ban on imports of low-CV coal first emerged from two national government conferences in March, said Chinese traders.

Domestic thermal coal producers in China have reportedly voiced their support for the proposed block on imported lower calorific value thermal coal, as this grade competes aggressively with a large proportion of their output which is between 4,500-5,500 kcal/kg NAR, said market sources.

--Mike Cooper, [email protected]

--Reggie Le, [email protected]

--Edited by James Leech, [email protected]